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CNBC posted an article yesterday (updated today) that because OPEC has not been able to reach an agreement about oil prices with its allies (led by Russia), Saudi Arabia has cut its oil prices and increased its production. A price war is expected to follow. This is great news for consumers, but horrible news for American oil production.

WTI plunged 18%, or $7.36, to trade at $33.92 per barrel. WTI is on pace for its second worst day on record. International benchmark Brent crude was down $8.44, or 18.7%, to trade at $36.80 per barrel. Earlier in the session WTI dropped to $30 while Brent traded as low as $31.02, both of which are the lowest levels since Feb. 2016.

“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction,” Again Capital’s John Kilduff said. “The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch.”

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement.

“The most likely outcome of the failure of the Vienna talks is a limited oil price war before the two sides agree on a new deal,” analysts led by Ayham Kamel said in a note to clients Sunday. The firm puts the chances of an eventual agreement at 60%.

Vital Knowledge founder Adam Crisafulli said Sunday that oil “has become a bigger problem for markets than the coronavirus,” but also said that he does not foresee prices falling to the Jan. 2016 lows.

“Saudi Arabia can’t tolerate an oil depression – the country’s fiscal breakeven oil prices remain very high, Saudi Aramco is now a public company, and MBS’s grip on power isn’t yet absolute. As a result, the [government] won’t be so cavalier in sending oil back into the $30s (or even lower),” he said in a note to clients Sunday.

OPEC has played this game before. In the 1970’s oil crisis, OPEC boycotted America because of our support of Israel. When American energy companies responded by drilling wells to meet the need, OPEC dropped the boycott and lowered the price to put those companies out of business. I suspect there may be an attempt to do that again, but I am not sure we are as vulnerable as we were then. If America continues on the path to energy independence, our oil prices will be less vulnerable to foreign manipulation. We may have to pay a little more than the price the Saudis will drop to for our oil, but it would be worth it in the long run. Hopefully we have people currently in charge that are looking long term rather than short term.

One America News is reporting today that two Russian air force planes landed in Venezuela’s main airport on Saturday carrying a Russian defense official and nearly 100 troops. This is reported by a local journalist.

The article reports:

Reporter Javier Mayorca wrote on Twitter on Saturday that the first plane carried Vasily Tonkoshkurov, chief of staff of the ground forces, adding that the second was a cargo plane carrying 35 tonnes of material.

An Ilyushin IL-62 passenger jet and an Antonov AN-124 military cargo plane left for Caracas on Friday from Russian military airport Chkalovsky, stopping along the way in Syria, according to flight-tracking website Flightradar24.

The cargo plane left Caracas on Sunday afternoon, according to Adsbexchange, another flight-tracking site.

It sounds as if the Russians are attempting to duplicate what they did in Cuba many years ago, support an unpopular dictator who will be a thorn in the side of America. The Russians have another reason to want to keep Venezuela indirectly under their control.

Cuba would have to spend nearly $2 billion a year to meet its domestic oil needs if Venezuela’s National Assembly and interim president Juan Guaidó manage to stop deliveries to the Caribbean island.

“Cuba’s demand for oil is about 130,000 barrels per day, and Cuba produces about 50,000 barrels per day, which means a deficit of about 80,000 barrels per day,” said Jorge Piñón, director of the Latin American Energy Program at the University of Texas at Austin.

Piñón estimates that Cuba has fuel reserves for about 45 days. But the end of deliveries by Venezuela’s PDVSA oil company would force the government to spend nearly $5.2 million per day at the market price of $65 per barrel for the 80,000 barrels per day it would need to import to meet demand.

By the end of one year, that would add up to nearly $2 billion for an economy that economists agree has not reached 2 percent annual growth in recent years and has probably experienced a recession.

The National Assembly, controlled by the opposition, recently ordered a suspension of crude shipments to Cuba, which started under an agreement to exchange oil for medical services negotiated by the late Fidel Castro and Hugo Chávez.

PDVSA now ships an estimated 40,000 to 50,000 barrels per day to Cuba, not quite half of what the oil company sent before it spiraled into an unprecedented crisis under the Nicolás Maduro regime.

Nicolas Maduro, the successor to Hugo Chavez, has not taken over any industries during the six months he has been President of Venezuela. This is the first move he has made in that direction. When Hugo Chavez began taking over industries, one news analyst observed that it would be difficult for him to keep those industries running at their profit levels without the knowledge of the companies that owned them. The seizure of these two rigs, which are repair rigs, is an illustration of that point.

Like it or not, free enterprise generates more wealth for more people than socialism.

It is a safe bet that oil production is only a fraction of what it was before Maduro took over the oil industry. That adds to the financial woes of Venezuela and will also have an impact of Cuba.

Bloomberg Business is reporting today that the Organization of the Petroleum Exporting Countries (OPEC) may boost oil production dramatically after the sanctions are lifted on Iran.

The article reports:

The global oil market is already in surplus by about 3 million barrels a day, with Saudi Arabia and Iraq responsible for OPEC’s oversupply in the past six months, Iran’s state-run Islamic Republic News Agency reported Sunday, citing Mehdi Asali. Iran can boost output by 500,000 barrels a day within one week after sanctions are lifted, Oil Minister Bijan Namdar Zanganeh said earlier this month.

…Iran made a “big mistake” when it backed OPEC’s decision in December 2011 to discard individual production quotas, Asali said. That allowed Saudi Arabia, Kuwait and other members to take over Iran’s share which was diminishing because of sanctions, he said.

…Brent oil futures closed at $49.19 a barrel on Friday, down 14 percent for this year.

We have seen this play before. There is an oil price at which fracking, a major part of American oil and natural gas production, is no longer profitable. To restart a fracking operation after it has been suspended is expensive and cumbersome. The easiest way to prevent America from becoming energy independent is to drop the price of oil as America begins to develop her oil and natural gas resources. This severely impacts the development–American businessmen are in business to make money. If fracking is not profitable, they will not invest the money to do it. OPEC would very much like to keep America dependent on their oil. Our dependency on OPEC oil has a tremendous impact on our diplomatic policy in the Middle East. We give money to and support in other ways countries whose basic ideas and values are in total conflict with our own. It would be very nice to be energy independent and be able to make decisions on international matters according to our principles–not our dependence on oil.

On Sunday, Stephen Moore posted an article at The Daily Signal about the recent decline in gasoline prices. The article reminds us that in June, oil reached a peak price of $103 a barrel. Since then, the price has dropped 25 percent. American motorists are seeing the results of that drop in gasoline prices at the pump that have dropped below $3.00 per gallon. At their present levels, gasoline prices are saving American consumers and businesses $200 billion a year.

The article reports:

Oil prices are falling because of changes in world supply and world demand. Demand has slowed because Europe is an economic wreck. But since 2008 the U.S. has increased our domestic supply by a gigantic 50 percent. This is a result of the astounding shale oil and gas revolution made possible by made-in-America technologies like hydraulic fracturing and horizontal drilling. Already thanks to these inventions, the U.S. has become the number one producer of natural gas. But oil production in states like Oklahoma, Texas and North Dakota has doubled in just six years.

Without this energy blitz, the U.S. economy would barely have recovered from the recession of 2008-09. From the beginning of 2008 through the end of 2013 the oil and gas extraction industry created more than 100,000 jobs while the overall job market shrank by 970,000.

President Obama, you didn’t build this recovery (such as it is)–it happened in spite of you! The energy blitz in America is breaking the back of OPEC. They can no longer blackmail western countries with threats of cutting off their oil supply.

The article further reports:

Yet the political class still doesn’t get it. As recently as 2012 President Obama declared that “the problem is we use more than 20 percent of the world’s oil and we only have 2 percent of the world’s proven oil reserves.” Then he continued with his Malthusian nonsense, “Even if we drilled every square inch of this country right now, we’d still have to rely disproportionately on other countries for their oil.” Apparently, neither he nor his fact checkers have ever been to Texas or North Dakota. And we don’t have 2 percent of the world’s oil. Including estimates of onshore and offshore resources not yet officially “discovered”, we have ten times more than the stat quoted by the president–resources sufficient to supply hundreds of years of oil and gas.

If the President and his Democrat allies would get out of the way, the American economy would recover. Please remember that when you vote next week.